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    Shell Settles Contamination Suit

    Oil company to pay $28 million to a California public utility in an out-of-court settlement.

    LOS ANGELES -- Shell Oil Co. yesterday said it would pay $28 million to a California public utility in an out-of-court settlement over water contamination by gasoline additive MTBE, closing a case that has set a precedent for dozens of similar suits around the country.

    "We determined this was the most appropriate action at this time to cease protracted litigation costs, future litigation and appellate costs," Shell spokesman Cameron Smyth told Reuters.

    In an 11-month trial, the South Tahoe Public Utility District sued MTBE producers, oil refiners and gasoline retailers, most of whom settled before the jury ruled in favor of the utility in April. The jury ruled against the three remaining defendants -- Shell, Tosco Corp., now part of Phillips Petroleum Co., and Lyondell Chemical Co. -- finding MTBE-blended gasoline to be "defective product."

    The jury also ruled that Shell acted maliciously by withholding information about MTBE's potential hazards, the report said.

    A local gasoline station also settled for $300,000 on Monday, bringing the total settlement costs to over $69 million.

    Lyondell, the world's largest producer of MTBE, settled out of court for $4 million on July 24 and has historically defended its position by blaming the gasoline refiners and retailers for faulty tanks that leak gasoline into the water.

    "Almost 94 percent of the total settlement or more has been paid by refiners and retailers and that really shows the problem was a storage tank issue," said Frank Maisano, spokesman for the Oxygenated Fuels Association, the MTBE industry trade group.

    Exxon Mobil Corp., BP plc, Atlantic Richfield Co., Chevron Texaco Corp., Phillips Petroleum and local independent convenience store owners were also sued for negligence that caused MTBE to leak from underground storage tanks into groundwater.

    In 1997, water wells on Lake Tahoe's south shore were found to be contaminated with MTBE, which has a chemical affinity for water and spreads quickly. Even small concentrations of MTBE give off turpentine-like odors, and opponents say it may cause cancer in animals, the report said.

    "We achieved our goals to correct the problem and cover costs," the water district said in a statement, and cited experts' remediation estimates at $30 to $35 million.

    Amid rising groundwater contamination reports, California Gov. Gray Davis banned MTBE in 1999, making it illegal to sell MTBE-blended gasoline from 2003.

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